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Saturday, August 6, 2011

The time has come for the business owners and managers of America to stand up and prove that the "confidence fairy" skeptics like Paul Krugman are wrong. In his latest column, Professor Krugman says "Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record." The President Surrenders. New York Times, August 1, 2011).

We all know that at present we are still on a continuing downward spiral. As the economy fails to improve -- microscopic increases in GNP and employment -- there is little consumer demand therefore firms are unwilling to hire new employees or take back those that have been laid off.

The economic cycle is however under our joint control. If, despite the lack of current demand, the businesses of America took a risk and started hiring, the income earned by these employees would trickle into the market and would result in increased demand. That would halt the downward spiral and soon result in the cycle reversing into an upward spiral of increased demand, increased employment, and rising GDP.

I can think of no better cause for the right to embrace than to "prove" the Keynesians wrong and that their model of improving confidence would result in improved economic performance.